Chipping Away at Success: Litigation as strategy isn’t unfamiliar in the competitive high-tech world, where trampled companies turn to courts to slay the enemy

June 4, 2013, 4:47 p.m. ET

Chipping Away at Success

Litigation as strategy isn’t unfamiliar in the competitive high-tech world, where trampled companies turn to courts to slay the enemy.

By DAVID KANSAS

Hector Ruiz opens his memoir with a prologue that is intended to read like the first pages of a thriller. Mr. Ruiz, the chief executive officer of Advanced Micro Devices until 2008, brings us into a 2005 board meeting. Curt exchanges, dire threats, doubt and debate fill the air. Given that Mr. Ruiz is a sharp engineer, one would expect the argument to be about some vital aspect of technology. Instead, it’s all about suingIntel, INTC +0.48% AMD’s giant market foe.

Seeing AMD as David to Intel’s Goliath, Mr. Ruiz code-named the suit “Slingshot,” the title of his book. He knew a thing or two about slingshots, having used them in his hardscrabble youth in a Mexican town on the U.S. border.Litigation as strategy isn’t unfamiliar in the brutally competitive high-tech world. Patent battles, regulatory scrums and lawsuits are remarkably prevalent in Silicon Valley, despite the region’s reputation for innovation and amazing growth. Often, trampled competitors turn to the government to slay the enemy, with middling results, apart from making lawyers happy.

Mr. Ruiz joined AMD in 2000 from Motorola MSI -0.73% and ascended to the CEO chair in 2002, succeeding the colorful Jerry Sanders. Mr. Sanders, bearded, nattily attired and fond of swank cars, kept AMD in the game, but the company always trailed Intel, and its financial resources faced constant strain. Things began to change under Mr. Ruiz, he claims. He argues that AMD’s technology, for a time, outstripped Intel’s. That enabled AMD to make market gains, especially outside of the U.S. Each move forward, however, ran into resistance. In Mr. Ruiz’s telling, Intel repelled AMD’s advances not by competing but by playing dirty: He alleges that Intel used financial-incentive programs and rebates in such a way that Dell, IBM, IBM -1.32% MicrosoftMSFT -1.69% and other buyers were forced to abandon or ignore AMD.

 

Slingshot

By Hector Ruiz
(Greenleaf, 200 pages, $23.95)

There’s no question that Intel used incentives to retain its enormous market dominance. Memos referring to hundreds of millions of dollars in incentives—such as rebates or steep discounts on bulk purchases—surfaced in regulatory probes that coincided with the Slingshot suit. But Intel, for its part, maintained that it played hard and fair.

Mr. Ruiz paints Intel as a paranoid bully, using threats to keep buyers in line. One email to Mr. Ruiz from an anonymous executive at IBM says: “From our side, the biggest thing we are worried about is retaliation. . . . I can envision a scenario of Intel having made preferential deals with HPQ [Hewlett-Packard HPQ -1.12% ] and Dell and us getting ‘punished’ for trying to work with AMD.” Convinced that AMD had superior products, Mr. Ruiz couldn’t fathom why it wasn’t doing better. In Japan, market share fell to 11% in 2003 from 40% in 2002. Similar retreats played out elsewhere. His conclusion: AMD must sue Intel to restore a level playing field.

“Slingshot” reads best when Mr. Ruiz recounts his impressive life. While resident in Piedras Negras, Mexico, he crossed the Rio Grande to attend the high school in Eagle Pass, Texas, where he was named valedictorian. That honor propelled him to the University of Texas, Rice University and a sparkling engineering career that included stints at Texas Instruments, TXN +1.69% Motorola and AMD, all major players in the semiconductor industry. His compelling narrative, unfortunately, gets lost in “Slingshot,” which he wrote with Lauren Villagran. Instead of writing a straightforward memoir, Mr. Ruiz sprinkles anecdotes from his life story throughout a book chiefly focused on the AMD-Intel battle.

There is a bit of score settling in “Slingshot.” Mr. Ruiz, in the end, doesn’t much care for Mr. Sanders, though he is thankful that Mr. Sanders brought him on board. Early in his tenure Mr. Ruiz excluded Mr. Sanders from a key meeting, claiming the latter “liked to hear himself talk.” The company he inherited, Mr. Ruiz adds, was “dysfunctional and disorganized.” Mr. Sanders, coincidentally, told Mr. Ruiz he didn’t favor the litigation strategy. Mr. Ruiz also insists that he wasn’t dismissed from AMD, as press reports inferred, but chose to leave in order to lead an AMD-backed venture, Globalfoundries. His only regret, he says, is firing a swath of workers early in his tenure to satisfy Wall Street analysts, a group he also doesn’t like too much.

As the AMD-Intel suit moved to conclusion in 2009, Mr. Ruiz was no longer at the helm. AMD’s Chairman Bruce Claflin called him at home to say the settlement would be announced the following day, Nov. 11. Over breakfast in Austin, Texas, he read the scoop in his hometown paper: Intel would pay AMD $1.25 billion to end the litigation.

He notes in an aside that, while that paper’s reporter had called him, he didn’t respond. It’s a mildly discomfiting passage, since Mr. Ruiz may have been laying low for other reasons. Just days earlier Mr. Ruiz had stepped aside as CEO of Globalfoundries after being identified as a source of information in the Galleon insider-trading probe. (He has since said that his stepping aside was part of a long-standing plan not related to Galleon.) In any case, Mr. Ruiz was never charged with wrongdoing, and he declines to address the Galleon issue or his departure from Globalfoundries in his book. Today he runs Advanced Nanotechnology Solutions, a firm he founded in 2010.

Did AMD’s Slingshot litigation strategy work? While AMD devoted a great deal of energy to it from 2005 to 2009, the company’s technology advantage over Intel eroded. Problems with a chip code-named Barcelona, combined with the financial crisis of 2008 and a poorly handled acquisition, hurt AMD’s prospects. The stock, trading near $10 just after the 2009 settlement, trades around $4 today, even as the broader market has recovered. Also, as Mr. Ruiz notes, not long after the litigation ended the chip market began shifting rapidly from PCs to mobile devices, an arena that presented fresh challenges to both Intel and AMD. He doesn’t say if the legal conflict distracted either firm from anticipating this new, fast-growing market.

Intel remains the dominant player on the block with a stock-market value more than 30 times greater than AMD. Intel’s settlement payment to AMD? About 1% of its present market value. And to Mr. Ruiz’s lasting chagrin, Intel never admitted or denied any wrongdoing.

Mr. Kansas is the chief operating officer of American Public Media Group and a former reporter and editor for The Wall Street Journal.